Fri, June 25, 2010
Financial Reform May Include Fiduciary Standard
At last, the financial regulatory bill resulting from months of activity in the House and Senate contains language that might result in the implementation of a standard requiring broker-dealers to act as fiduciaries.
In December last year, the House passed a version of the reform bill that required extending the fiduciary standard to brokers. The Senate’s version, completed in May, required the SEC to study the fiduciary issue but did not require that any action be taken to extend the standard. Until recently, the Senate language, considered by many to have the effect of ensuring that a fiduciary standard for brokers would not be implemented, was still in place in the House-Senate compromise bill.
In an agreement confirmed yesterday, the SEC must complete a study of existing advisor and broker obligations toward retail customers. After the study is complete, the SEC will be empowered to place brokers under the same regulatory guidelines as investment advisors - a duty of fiduciary care.
What the compromise language does not do is actually require the SEC to set a fiduciary standard for brokers, although SEC Chairman Schapiro has indicated that she wants to implement such a standard. The House-Senate compromise is encouraging, but consumer advocates will continue to be wary until a standard is actually in place. If enacted, the new law will have the effect of shifting the debate over a fiduciary standard from Congress to the SEC, where brokerage firms can be expected to press for some less-demanding standard..